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For-Profit Folly in Haiti

October 2012

Over the past few decades, the U.S. Agency for International Development (USAID) has seen its staff level drop significantly at the same time as the amount of money under its discretion has rapidly increased.

Over this time, USAID has stepped up its reliance on for-profit contractors to fill the void. The result, as Hillary Clinton stated in her confirmation hearing (USAID is part of the State Department), is that USAID has “turned into more of a contracting agency than an operational agency with the ability to deliver.”

To be sure, there are efforts are underway to slowly fix this. In the meantime, the status quo reigns, with perhaps nowhere serving as a better example of the pitfalls than Haiti. Since the devastating earthquake in January 2010, USAID has awarded some $450 million in contracts – with 70 percent of them going to DC area contractors, the so called “beltway bandits”. The largest USAID contractor in Haiti (and the world, for that matter), Chemonics has received some $177 million of this total. With such a large amount of resources going to one company, you might expect there to be vigilant oversight and strict guidelines. Unfortunately, you would be mistaken.

The USAID Inspector General released a report last week that shines some much needed light onto the operations of USAID’s largest contractor. The report looks at the $53 million dollar Haiti Recovery Initiative run by Chemonics, the follow up program to a $39 million program that began right after the quake. Among the findings in the audit: projects were “not on track”, the monitoring and evaluation system was weak and arbitrary, there was a lack of community involvement in project planning and they failed to get the appropriate environmental approvals before undertaking potentially damaging projects. This isn’t the first time Chemonics has been criticized for their work in Haiti . The same Inspector General found a host of similar problems with the original $39 million contract the year before, yet USAID turned around and gave Chemonics another $50 million anyway.

The same process had already played out before in Afghanistan. After USAID awarded a $100 million contract to Chemonics for work in the agricultural sector of Afghanistan, a 2005 Government Accountability Office report found significant problems with the program. Yet despite the documented problems, just like in Haiti, the next year USAID turned around and gave the same contractor another $100 million. The Inspector General also found numerous problems with that program.

Looking back, it’s clear for all to see the giant fiasco of reconstruction in Iraq and Afghanistan. Stuart Bowen, the Special Inspector General for Iraq Reconstruction (SIGIR) recently said that some $6-8 billion dollars were lost due to waste, fraud and abuse in Iraq, echoing similar findings for the reconstruction effort in Afghanistan. The biggest contributor, as Bowen points out, is the lack of oversight on the part of the U.S. government. In Haiti, the reconstruction process is very much still ongoing and the U.S. will continue to spend hundreds of millions of dollars. It’s time to learn from past mistakes, heed the advice of independent auditors, and find a better way to deliver results to those in need.

The USAID Forward initiative, which aims to scale back the use of big contractors and increase money going to local organizations and local governments, is one such way to better the delivery of aid. The initiative also calls for enhanced monitoring and evaluation of projects. In Senegal, USAID shifted a school building program to the government and away from a typical contractor. The result was that the average cost of building a school was cut by more than half, from $425,000 to $200,000.

Of course these reforms won’t be easy, and the for-profit aid industry won’t take it lying down. Chemonics and 50 other development companies joined forces last year as the Coalition for International Development Companies and are currently fighting against these reforms. They even hired the well-connected Podesta Group to work on their behalf, paying them over $250,000 in the last year, according to lobbying disclosure forms.  We know what doesn’t work: cutting big checks to unaccountable for-profit contractors was a failure in Iraq and Afghanistan and it’s failing in Haiti. We also know how to fix the problem: providing meaningful oversight while empowering local organizations and local governments to lead their own reconstruction. It’s time for a change. 

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